Pre-Market Stocks: Big Tech Can’t Save Your Investments

A version of this story appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to the audio version of the newsletter by clicking on the same link.


New York
CNN business

Tech stocks are taking a beating this week as investors are less resilient to the economic downturn than expected.

What’s happening: Weak earnings results from parent company Alphabet ( GOOG ) and Microsoft ( MSFT ) Google weighed on markets Wednesday, showing that this year’s $5.5 trillion in sales has yet to bottom out. The tech-heavy Nasdaq ended the day down 2%. Facebook parent company Meta Platforms ( FB ) then reported weaker-than-expected results after the market closed, sending its shares down 20% in premarket trading.

Big picture: We’re in the midst of third quarter earnings season, and so far, things haven’t been too bad. Major banks mostly met or beat expectations, and Netflix ( NFLX ), which took a hit earlier this year, also showed a nice rebound. Markets rallied from late last week into early this week on that earnings push.

But disappointing gains in Big Tech stocks tend to reverse the broader market thanks to the tremendous market value down south.

Beyond determining market sentiment, technology gains provide important clues about where the economy is headed. That’s because the multinational futures industry is particularly sensitive to inflation, rising interest rates and a strong dollar.

So far, what we are seeing is investor frenzy. Alphabet, Microsoft and Meta Platforms all reported that the slowing global economy was hitting their businesses.

Microsoft beat forecasts but reported its slowest revenue growth in five years on Tuesday as rising energy costs and a stronger US dollar cut into profits. In particular, sales growth in the cloud business – one of the company’s brightest spots in recent years – was less than analysts had expected. Its second-quarter fiscal outlook missed Wall Street estimates, sending shares down 8% on Wednesday.

Alphabet, meanwhile, missed profit expectations as ad sales slowed to the slowest growth rate since the pandemic-induced recession. Earnings are down 27% from last year, and the company’s shares fell nearly 10% on Wednesday.

Alphabet CEO Sundar Pichai warned that the company would have to “respond to the economic environment” and hinted that cost-cutting measures such as layoffs are coming.

Meta Platforms also reported an earnings-per-share miss and revenue was down about 4.5% from the same period last year. The company that owns Facebook, Instagram and Whatsapp has warned Wall Street that its full-year growth forecast will be lower than expected and that layoffs and cost cutting are coming.

Bottom line: “Meta, Alphabet and Microsoft should be able to withstand fluctuations in revenue growth if they remain productive,” said Dan Wang, a professor at Columbia Business School, but in today’s environment “there is little evidence that these companies are at the same level of productivity.” he can keep it.”

Big Tech rose to new heights in the last decade as companies experienced low interest rates and low inflation. the environment This is no longer the case. These gains indicate that it won’t be for a while.

Coming up: Apple ( AAPL ) and Amazon ( AMZN ) reported after the market closed on Thursday.

New home sales fell in September as rising mortgage rates pushed some buyers away from the housing market, colleague Anna Bahney reported.

Sales of newly constructed homes fell 10.9% in September from August and were down 17.6% from a year ago, according to a joint report from the US Department of Housing and Urban Development and the US Census Bureau.

“New home sales took a hit in September due to rising mortgage rates, which are currently hovering around 7%,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Inventory and new home prices remain high, so a drop in mortgage rates and prices would cause a rush to buy, but we wouldn’t expect such conditions until next year at the earliest.”

Until that happens, there will be a mismatch between high prices and buyers’ budgets, said Kelly Mangold of RCLCO Real Estate Consulting.

“Motivated buyers who can afford the rate hike or those who are buying with cash face much less competition than at the start of the year,” he said.

Wall Street bonuses are expected to drop at least 22% this year after last year’s big payouts, according to a new report by New York State Comptroller Thomas DiNapoli.

A slowing economy, geopolitical turmoil and heightened inflation have all worked to dry up the number of IPOs and M&A deals on Wall Street. This means that the fees collected by investment bankers are down from 2021 records.

“The gains and bonuses of the past two years driven by the extraordinary federal response to the pandemic were not sustainable,” DiNapoli said. “As the sector slows in 2022, business leaders are looking at staffing and office needs and a prolonged recession could have a negative impact on state and city coffers.”

According to DiNapoli, the pre-tax profits of Wall Street companies were $13.5 billion in the first half of the year. That’s a 56% drop from the $31 billion earned in the same period last year.